Patent Box

What is Patent Box?

Patent Box tax relief is the government’s way of rewarding companies that are driving innovation and investing in new ideas including new processes or new products and have taken steps to patent these ideas and innovative processes and products. The aim is to encourage the development of new patents in the UK. If your company is making a profit on your patented inventions or processes, you will be eligible for a lower effective corporation tax rate of 10% on your relevant profits. This will save your company money and allow you to invest in future innovation.

If you are eligible for Patent Box tax relief, it is likely that you are also eligible for R&D tax relief. Our team of experts are here to help. Please check our home page for a full explanation on R&D Tax Reliefs.

Who can benefit

You can only benefit from Patent Box if your company is liable to corporation tax and makes a profit from exploiting patented inventions.

Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.

If your company is a member of a group, it may qualify if another company in the group has undertaken the qualifying development.

Do I Qualify?

The Patent Box regime is optional. However a company can claim the patent box relief if the company has opted into the Patent Box regime.

Companies that own the patent outright are eligible.

You could also be eligible if you have an income from licensing a patent to another company either in the UK or in another company within the European Union, or even if you have sold a patent.

The Patent Box legislation requires expertise in the processing of the claim however your application is safe in the hands of ZLX. There is no fee due by the company if a Patent Box Tax Relief submission is unsuccessful.

We will thoroughly review and analyse your position before making an application and if we can’t see an opportunity for you to claim the Patent Box tax relief, you won’t pay a penny.

Your company will qualify for relief if:

  • You own patents, or
  • You own an exclusive licence to exploit a patent
  • It’s a UK, specific EEA country or EU patent (& certain other rights)

Call us to check if you’re eligible on +44 (0)141 739 3377.

Patent Box Calculator

Patent Box relief is given in the company’s corporation tax computation using the following formula:

Under the new rules there is an additional stage to calculate the relevant profit for Patent Box. An R&D fraction has to be applied to the relevant profit in each substream,

The R&D fraction is (D+S1)x1.3 / (D+S1+A+S2)

D is Direct R&D expenditure, S1 is unconnected third party R&D subcontracting expenditure, S2 is connected party R&D subcontracting expenditure and A is acquisition cost of IP.

There is a 30% uplift (x1.3) applied to the ‘good’ R&D expenditure on the numerator which is permitted by the OECD rules, increasing the fraction to allow for various circumstances in which substantive activity by the company would not contribute to qualifying expenditure, for example because of its group structure.

Taking company X, these products contain only compound A which was entirely self-developed. There is therefore no need to calculate an R&D fraction because it will be 1 (it is £1m qualifying cost divided by £1m total cost). So we multiply the 50,000 profit for X by 1, to get a relevant profit of 50,000.

  • X, R&D fraction = 1

For X, we have to include both compounds A and B. That means the R&D fraction looks like this:

(Qualifying expenditure x 1.3)/ Total expenditure

Qualifying expenditure = £1m in-house R&D costs (D)

Total expenditure= £1m in-house R&D costs (D) + £500,000 payment for exclusive licence (A)

  • X R&D fraction = (1m x 1.3) / (1.5m) = 0.87

Combine the sub-streams.

The final relevant profit figure for X is 0.87 x 6000 = 5,220 and the final total relevant profit for the company is 50,000 + 5,220 = 55,220.

RESULT is an EFFECTIVE rate of 10% on Patent profit stream

These calculations look complicated but ZLX will simplify your claim and ensure maximum return for your patent box tax relief claim.

Making a claim – getting it right

We know what HMRC are looking for, so we can ensure your claim is accurate and complete – which gives you the best chance of having your claim approved. We manage your claim from start to finish. The aim is to minimise the impact on your day to day operations – simply put, we will do the work and you will get the benefit. And of course stand by our claims, if you face a HMRC enquiry we defend it free of charge and run that process on your behalf at no extra charge.

What does it mean for you?

R&D for tax purposes does not necessarily mean blue-sky research which is a common misconception that can prevent companies from receiving the benefits from HMRC that they are entitled to.

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